This article is produced by The Economist Intelligence Unit
As trade becomes a more discernible headwind on the global stage and economic activity slows in some key nations, Malaysia could undergo an export slump; the bulk of its largest export category electronic and electrical goods goes to the world’s two largest economies, which are both under pressure and may see declining consumer spend. Malaysia will need to depend instead on steady growth in its own industrial and services sectors to support GDP growth.
Apart from the free trade agreements (FTA) the country is party to as a member of the Association of Southeast Asian Nations (ASEAN), Malaysia has also pursued separate agreements to expand its trade options across the globe. These include bilateral agreements with Turkey, India, Chile, Australia, Pakistan, New Zealand and Japan. The nation is also part of talks concerning the Regional Comprehensive Economic Partnership (RCEP), which are likely to conclude in next 12–18 months. If accepted, the RCEP will be Malaysia’s largest multilateral FTA.
The country’s improving business environment could bolster its trade efforts. In the latest EIU Business Environment Rankings, we see that an expanding economy, rising disposable incomes and greater consumer spending power have potential to boost appeal of the Malaysian market. However, a small population, relative to neighbours, will likely limit the extent of opportunity for the country’s businesses.
Furthermore, in a bid to improve its technological ecosystem, the Malaysian government shifted its attention and resources towards digital progress with relative success. Internet penetration reached nearly 86% in 2017, according to the national Department of Statistics; momentum in this area should continue in coming years. Cybersecurity is also an area of strength the country ranks third globally in the 2017 Global Cybersecurity Index prepared by the International Telecommunication Union (ITU), a UN body.
However, while Malaysia’s global standing improved in the EIU Technological Readiness Rankings, it still lags behind regional peers who are also all pushing forward, which is a boon to ASEAN overall but leaves Malaysia to struggle more in order to get ahead in the region.
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